Connecticut has enacted a law (the amendment) amending the state's existing small loan act (the act). In this alert, we focus on the amendment's application of the act to "earned but unpaid wage or salary income advances" (the amendment's term for earned wage access services, also known as on-demand pay services, which allow workers to access earned but unpaid income before payday). The amendment also imposes licensing and other substantive requirements on providers and grants these advances limited relief from the act's annual percentage rate (APR) limits. The governor approved the bill (Public Act 25-155) on July 8, 2025. Following September 2023 guidance regarding earned wage access services from the Connecticut Department of Banking, the amendment also provides greater regulatory certainty for these innovative financial services in the state. Connecticut joins Arkansas, Indiana, Kansas, Louisiana, Maryland, Missouri, Nevada, South Carolina, Utah, and Wisconsin, each of which have adopted legislation for earned wage access services. California has also adopted regulations (but not laws) for earned wage access services.
Licensing and Exemptions
Connecticut's existing small loan act prohibits an unlicensed person from making a small loan to a Connecticut borrower. It also prohibits an unlicensed person from engaging in a variety of other small loan activities (e.g., generating leads, brokering, receiving payments, purchasing, etc.). The act already addresses license qualifications, applications, and procedures, as well as regulatory notices relating to changes affecting a licensee. A license is not transferable. The act offers typical licensing exemptions, such as those for banks, credit unions, other types of licensed financial services providers, retail sellers, and "passive buyers."
The act's existing definition of "small loan" captures listed financial products if the amount is $50,000 or less and the APR exceeds 12%. The amendment modifies the act's definition of "small loan" so that its list of financial products will specifically include an advance of money on earned but unpaid wage or salary income in an original principal amount that is less than $750 but not greater than a worker's (referred to in the amendment as a "Connecticut borrower") earned but unpaid wage or salary income for the pay period. The amendment also adjusts the act's definition of "APR" so that APR will be calculated with respect to all "finance charges," which are in turn broadly defined as including, inter alia, "a charge for any ancillary product, membership or service sold in connection or concurrent with a small loan [...] and any fee, voluntarily or otherwise, charged, agreed to or paid by a [Connecticut] borrower in connection or concurrent with a small loan." Earned wage access providers should consider the amendment's impact on any optional delivery fees, subscription or membership fees, tips, or other amounts they might receive.
Conduct Requirements
In addition to the act's existing requirements, the amendment imposes new substantive conduct requirements on providers of earned but unpaid wage or salary income advances, including:
- No credit scores. Providers may not require credit reports, credit scores, or other credit-related information to determine a worker's eligibility for earned but unpaid wage or salary income advances.
- Consumer disclosures. Before offering or providing earned but unpaid wage or salary income advances, a provider must fully and clearly disclose to the worker: any finance charges; the provider's cancellation procedure; that the worker may submit complaints to the Connecticut Department of Banking; and a link to the department's website.
- No-cost option. The provider must offer the worker at least one option per transaction for obtaining earned but unpaid wage or salary income advances at no cost and clearly disclose how to elect that option.
- Access amounts and frequencies. A provider who charges or receives a finance charge must offer the worker at least 75% of the worker's earned but unpaid wage or salary income for the pay period, or limit the worker to only one advance for the pay period.
- Earnings verification. Before offering or providing an earned but unpaid wage or salary income advance, a provider must verify that a worker's earned but unpaid wage or salary income meets or exceeds the amount of the advance by using payroll data of the worker's employer; electronic payroll data that the worker affirmatively authorizes the provider to access; or similar data or a reasonable method approved by the Connecticut Banking Commissioner. These verification requirements could impair the business of providers offering earned wage access services under typical direct-to-consumer models.
- Anti-stacking measures. Before offering or providing earned but unpaid wage or salary income advances, a provider must obtain a worker's attestation of understanding that they may not receive multiple advances from multiple providers on the basis of the same earned but unpaid wage or salary income. Additionally, providers must implement measures to prevent advances from being provided to workers who received an advance from another provider on the basis of the same earned but unpaid wage or salary income, including through reviews and analyses of data every six months.
- Capped finance charges. Finance charges for earned but unpaid wage or salary income advances may not exceed $4 per advance or $30 per month. In contrast, an APR limit of 36% applies to other types of small loans.
- Voluntary charge practices. Providers who
solicit, charge, or receive finance charges that purport to be
voluntary must:
- Inform the worker how much earned but unpaid wage or salary income the worker is approved to request before soliciting a voluntary finance charge
- Clearly and conspicuously disclose each time that:
- The finance charge is voluntary
- The worker may elect a finance charge that is $0
- The amount and frequency of earned but unpaid wage or salary income advances are not contingent on whether the worker agrees to or pays a voluntary finance charge or has previously paid a finance charge
- Set the amount of any default voluntary finance charge option at no more than $0
- No interest or penalties. Providers may not charge late fees, deferral fees, interest, or other penalties for a late payment or nonpayment.
- No credit card payments. Providers may not accept payments via credit card or charge card.
- No sharing finance charges with employers. Providers may not share any finance charge paid by a worker with an employer.
- Overdraft fees. A provider who seeks payment by debiting a worker's account at a depository institution must reimburse the worker's overdraft or nonsufficient funds fees caused by the provider in certain circumstances.
- Settlement scheduling. An advance must be scheduled for payment in a single payment on a date that corresponds to the worker's next scheduled paycheck or direct deposit payment from their employer, which must be within 34 days after the advance is provided. A provider may not ask a worker to pay before the worker's next scheduled paycheck or direct deposit payment from their employer. Under certain circumstances, the provider and worker may agree to settle an advance through up to three installments.
- Transaction histories. Providers must make transaction-level information and total information regarding advances for the pay period and the preceding 12 months readily available to workers.
- No debt reporting or collection. Providers may not compel or attempt to compel a worker to pay through lawsuits against the worker; unsolicited, outbound telephone calls; third-party collections on the provider's behalf; sales to consumer collection agencies for collection from the worker; or reports to consumer reporting agencies regarding nonpayment.
Relation to Other Laws
The amendment clarifies that earned but unpaid wage or salary income advances are subject to Connecticut's small loan act. The amendment does not purport to affect other state laws.
Compliance Timelines
The amendment becomes effective October 1, 2025. The amendment does not include a grandfathering provision.
Next Steps
Providers should promptly evaluate their systems, procedures, and disclosures for compliance with Connecticut's new requirements. Providers should also be prepared to apply for licenses. Familiarity with Connecticut's law is also important for industry participants because this law, along with laws and regulations in other states, may shape similar legislation pending in other states.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
